Wednesday, August 31, 2016

We’ve gone electric, and there’s no going back at this point. Lithium is our new fuel, but like fossil fuels, the reserves we’re currently tapping into are finite—and that’s what investors can take to the bank.

You may think lithium got too popular too fast. You may suspect electric vehicles are too much buzz and not enough real future. You may, in short, be a lithium skeptic, one of many. And yet, despite this skepticism, lithium demand is rising steadily and sharply, and indications that a shortage may be looming are very real.

It won’t be a shortage in terms of ‘peak lithium’; rather, it will be a game of catch-up with the electric car boom, with miners hustling to explore and tap into new reserves.

Consider the number of battery gigafactories that are being built around the world. We have all heard about Tesla’s (NYSE: TSLA) Nevada facility that will at full capacity produce enough batteries to power 500,000 electric cars per year by 2020.

This, as the carmaker proudly notes, is more than the global total lithium ion battery production for 2013. That’s a pretty impressive rate of demand growth over just three years—but this growth also represents the culmination of a sea change in the way we think.

Lithium is powering pretty much everything upon which our present depends on and our future is being built. It’s a viable alternative to petrol and in consumer electronics market segment alone, there is no sign of contraction—only expansion. Think the Internet of things, or smart houses, or smart cities, eventually. All these fascinating ideas are powered in some way by lithium.

But the real and present coup has been launched by electric vehicles. Forecasts from market research firms seem to be unanimous: EVs are on the rise, EVs are hot, and EVs will be increasingly in demand as people all over the world are eagerly encouraged to cut their carbon footprint. According to Lux Research, the EV market will grow to $10 billion within the next four years. Navigant Research forecasts EV sales will rise from 2.6 million last year to more than 6 million in 2024. So, whether we like it or not, EVs are coming—and in force.

Indeed, says Nevada Energy Metals (SSMLF:US) executive Malcolm Bell, “It may be time to start worrying about a shortage, but it’s not a question of whether we have enough lithium—it’s a question of tapping into new reserves. Those who don’t see the supply wall looming, will hit with a resounding thud. Those who start tapping into new reserves will be extremely well-positioned for the future.”

From where everyone is standing right now, it may seem that the world’s got a fair amount of lithium. According to global estimates by the U.S. Geological Survey, there is enough lithium in the world – 13.5 million metric tons of it – to last us over 350 years in batteries.

What’s missing from this prediction, however, is … the future, and indeed, the present. This calculation takes into account only the current rate of lithium ion battery usage. It does not account for the entrance of EVs into the mainstream. It does not account for Tesla, not to mention the growing ranks of Tesla rivals. And it most certainly doesn’t account for what is by all means a pending energy revolution that sees lithium as its leader.

Already, the present is clear: Demand is growing fast, faster than production, and for now this new demand is coming increasingly from the electric vehicle industry.

Tesla’s is by no means the only battery gigafactory out there. There are others being built around the world (at least 12, according to Benchmark Mineral Intelligence) and these gigafactories will raise the global demand for lithium batteries to some 122 GWh by 2020. That’s up from 35 GWh currently. It’s a phenomenal rise over a very short period of time.

In the U.S., there is already one gigafactory—Tesla’s, in Nevada—operating. A second gigafactory is in the works, courtesy of LG Chem. Brine-based lithium production in the country is concentrated in one place only, at least for now, and this place is Nevada. That’s because it is the only confirmed place with lithium deposits. The biggest actively mined area is the Clayton Valley, with presence from both mining majors like Albermarle (NYSE: ALB) and smaller, pure-play lithium miners such as Nevada Energy Metals. This makes Clayton Valley ground zero for the U.S. lithium rush and everyone wants to be there, but it’s the pure play miners who are set to explode onto this scene from an investors’ perspective.

Clayton Valley can hardly contain the lithium rush, and it is already time to look in the surrounding areas to secure future supply for soaring demand predictions. Those with enough foresight are diversifying their Nevada holdings and banking on geological clues that suggest there’s plenty more lithium in Tesla’s backyard, and whoever gets to it first will be far ahead of the game.

“When everyone starts paying attention to Nevada’s geology, we’ll see a land rush that makes the current one pale by comparison,” says Bell, who heads of acquisitions for Nevada Energy Metals, one of the pure play movers in this playing field that sees the wider lithium potential in Nevada.

“Nevada’s geothermal footprints are large and extend well beyond the Clayton Valley. If you put a mirror up to Clayton Valley, there is endless opportunity here. The real race here is to create the next U.S. lithium powerhouse,” says Bell.

How to Play Lithium

Look everywhere, and then look again. Securing an investment in Clayton Valley is a good place to start—but it’s also potentially only a flash in the pan. The best way to secure a foothold in lithium right now is to think outside the box and look for those companies who see the bigger picture but are also smart enough to keep one foot in the proven lithium hunting grounds.
Related: Is Doomsday Inevitable For Venezuela?

But you also have to understand the supply and demand picture here.

Macquarie Research estimates that in 2015 demand for lithium already exceeded supply, while this year, lithium output will again fall short of demand.

In 2017, thanks to so much new production capacity the metal’s fundamentals will near an equilibrium, which will last for about a year before deficit rears its head once again—but this time the deficit will stick. Despite new efforts to ramp up supply, it will take a while before supply corresponds to the demand.

The future is pretty clear: We’re looking at a period of shortage, and shortage is where the savvy investors make real money. The lithium feeding frenzy has only just begun. Consumer electronics keeps it safe and steady, as always; the electric vehicle boom skews the demand picture dramatically, and the future’s energy storage and powerwall evolutions take it over the edge.

The reserves are there, and there’s geologists estimate there’s plenty of unproven reserves out there as well—it’s just a matter of who finds them first, and who starts extracting first.

Lithium has the purest of fundamentals of any ‘commodity’ out there, and the next oil barons look set to actually be lithium barons. In fact, in this respect, electric vehicles will likely be the cause of the next oil crisis. Demand and supply are simple and shockingly visible, and that means there’s a lot of new money floating around for lithium exploration. If you’re not a believer, the immediate future will sweep you off of your feet.

The Board of Governors of the Federal Reserve system launched a new Facebook page last week, and UPI reports that the fed's pronouncements on the new page were not met with universal approval:

The page has gained more than 13,000 likes but has been flooded with critical and sarcastic comments, starting from its very first post.

"Can you guys please help me get some of that QE? I'm trying to buy 16 cars, 4 houses, 2 jets and a yacht," one commenter wrote. "I swear it will stimulate the economy. I'll spend it all and cycle it back. I know velocity needs to pick up so I'll make sure to pay lots of models to live in my houses and travel with me. Thanks Fed! You are such a moral and upstanding institution!"

Indeed, a quick visit to the page reveals more or less non-stop attacks on the Fed with each new post. The Fed has it's defenders on the page, as well.

It is interesting to consider, however, how the Fed feels it is even constructive or necessary to engage the public through social media. As little as ten years ago, it would be extremely difficult to imagine the Fed even bothering to address the public at all. At that time, the Fed happily remained hidden from public views, and the only scrutiny came from commentators in the financial sector. Most of those, generally gushed over what an excellent job the Fed was doing.

Of course, during the time of Alan Greenspan, the Fed earned nearly universal praise among mainstream economics faculty, with some even declaring that the business cycle might even be abolished with careful leadership — such as Greenspan's — at the central bank. Bob Woodward declared Greenspan to be "the Maestro" in his 2000 book.

In his Presidential run in 2008, however, Ron Paul became the first national figure in decades to gain traction in questioning whether or not the Fed was all it was cracked up to be. Paul even suggested that the Fed might best be abolished.

What followed was several years of declining legitimacy for the Fed as a growing number of people began to understand what a central bank is, and what it does — and as the US went through the worst recession in decades. The public began to understand also that the Fed functions primarily out of the public eye — and without any meaningful accountability — while making decisions that can have an enormous effect on public policy and the economy.

By March 2011, the Fed capitulated and began to hold regular press conferences for the first time in its history. According to the Fed's press release at the time: "The introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication. The Federal Reserve will continue to review its communications practices in the interest of ensuring accountability and increasing public understanding."

The Fed says that sort of thing because it has to, but it would obviously engage the public as little as possible, if it had the choice. After all, if it did want to engage the public, it could have introduced press conferencesdecades ago. It's not as if the White house just started doing press conferences a few years ago, and now the Fed has decided to give this new-fangled thing a try.

This latest move into social media further shows the Fed recognizes that it must engage in damage control and expand what it calls "monetary policy communication."

Of course, just because the Fed now engages in direct communications with the public doesn't mean it's providing an accurate view of what the Fed does or why it does it.

Dropbox confirmed Wednesday that a data breach discovered and disclosed in 2012 was bigger than previously known and according to one report could involve almost 69 million accounts.

The cloud-storage company said it reset the passwords last week of all affected users — people who signed up for accounts before the middle of 2012 and hadn’t changed their passwords since then. The company confirmed that more than 60 million accounts were affected. Vice’s Motherboard website earlier reported the figure.

“This is not a new security incident, and there is no indication that Dropbox user accounts have been improperly accessed,” Patrick Heim, head of trust and security at Dropbox, said in a statement. “We can confirm that the scope of the password reset we completed last week did protect all impacted users. Even if these passwords are cracked, the password reset means they can’t be used to access Dropbox accounts.”

The Nobel Prize medal belonging to John F. Nash, awarded in recognition of his contributions to game theory, is set to be auctioned at Sotheby’s in New York on Oct. 17, reports The New York Times. It carries an estimate of $2.5 to $4 million.

Nash, whose life inspired the movie “A Beautiful Mind,” won the Nobel Prize for economics in 1994, at a time when he was unemployed, after years of struggling with mental illness.

Treasury securities traders are beginning to fear a Federal Reserve rate hike later this year.

Take note Austrian-lites,

There is no chance the Fed is going to reverse the December 2015 rate hike anytime soon. Holding the view that a near-term plunge to negative rates in the U.S. is likely is the height of confusion about the current state of the economy and how the Federal Reserve operates.

Finland is about to launch an experiment in which a randomly selected group of 2,000–3,000 citizens already on unemployment benefits will begin to receive a monthly basic income of 560 euros (approx. $600). That basic income will replace their existing benefits. The amount is the same as the current guaranteed minimum level of Finnish social security support. The pilot study, running for two years in 2017-2018, aims to assess whether basic income can help reduce poverty, social exclusion, and bureaucracy, while increasing the employment rate.

The Finnish government introduced its legislative bill for the experiment on 25 August. Originally, the scope of the basic income experiment was much more ambitious. Many experts have criticized the government’s experiment for its small sample size and for the setup of the trial, which will be performed within just one experimental condition. This implies that the experiment can provide insights on only one issue, namely whether the removal of the disincentives embedded in social security will encourage those now unemployed to return to the workforce or not.

Still, the world’s largest national basic income experiment represents a big leap towards experimental governance, a transformation that has been given strong emphasis in the current government program of the Finnish state. Additionally, the Finnish trial sets the agenda for the future of universal basic income at large. Its results will be closely followed by governments worldwide. The basic income experiment may thus well lead to the greatest societal transformation of our time.

There are few important things one should understand when following the headlines on the Finnish basic income experiment:

1.Basic income is the most comprehensive political reform of our century so far.

There is no other reform in sight that would a) potentially impact the majority of citizens in any given nation and b) be of such great importance in as many countries as basic income is today. Take the global interest in the Finnish experiment as evidence: why such attention for a trial in a country of just 5 million inhabitants? Probably because basic income seems to address challenges faced by all societies across borders. Currently, basic income is being discussed in earnest in Switzerland (where a basic income reform was rejected in a referendum in June 2016), in the US (where Y Combinator, an organization known for its highly successful start-up accelerator, has announced a pilot experiment for basic income to take place in Oakland, California) and in the Netherlands (where a basic income experiment will begin in the city of Utrecht in January 2017).

2. The Finnish basic income experiment is officially referred to as an incremental reform of the welfare model, not as an indicator of a complete paradigm shift.

At present, citizens in Finland are entitled to a minimum level of social security support that is the same as the amount of its suggested basic income (560€ a month). In official statements, the basic income experiment is said to aim to reduce bureaucracy, to unravel disincentives and to decrease poverty in society. Government documents do not mention changes in the structure of work and income, nor do they offer comments on looming technology-induced unemployment. Hence, basic income is seen as an additional element to the Finnish universal social security system. Elsewhere, basic income has been envisioned as a solution for rising inequality, exacerbated by the explosion of robotics and the automatisation of routine work. Top politicians in Finland, however, have not explicitly made these connections.

3. The basic income trial is a part of a larger shift in policy-making.

Over the last two years, Finland has explored possibilities on how to reform its policy-making functions. As Forbes put it, Finland, through the Prime Minister’s Office, has “been pioneering a form of deciding upon public policy where people actually think through the problems at issue, think about them, consider solutions, test a few of them, then implement the best.”

This new form of policy-making has come to be known as “co-design” or “co-creation” of policy. In short, the term refers to the engaging of relevant stakeholders and citizens in the policy-making process from its early phases onwards. As further described in this article, which looks at the policy-making model that was created by Nordic think tank Demos Helsinki, more human-centered and experimental governmental steering can encourage trust and make policy more user-oriented, targeted and efficient.

The basic income trial will pave the way for about 20 other large-scale experiments in Finland that have been launched or will be launched by the country’s ministries in the coming months. With the preparation work for the basic income trial, the Finns have spotted a handful of legislative problems that will need to be tackled in order to foster further experimentation. Experimental culture in general has encouraged civil servants to take a permissive attitude to legislation and thus enabled further innovative experimentation (well demonstrated by this case, where traffic law was reinterpreted so that it allowed Finland to become the first country in the world to test driverless vehicles in real urban environments). Lastly, preparing the large experiment has already forced the country to open up the discussion on and solve important issues in relation to the ethics and practices of experimenting. All this lays as a solid groundwork for building a forerunner governance system in the country.

Donald Trump is considering jetting to Mexico City on Wednesday for a meeting with Mexican President Enrique Peña Nieto, just hours before he delivers a high-stakes speech in Arizona to clarify his views on immigration policy, according to people in the United States and Mexico familiar with the discussions.

The possibility, which was hatched in recent days by Trump and his campaign advisers, comes after Trump has wavered for weeks on whether he would continue to hold his hard-line positions on the central and incendiary issue of his campaign, in particular his call to deport an estimated 11 million immigrants who are living in the United States illegally.

Peña Nieto invited both Trump and Democratic presidential nominee Hillary Clinton to visit Mexico last Friday, his office said in a statement provided to The Washington Post on Tuesday night. Although no meetings have been confirmed, the statement said, both campaigns received the invitations “on good terms.”

Trump, sensing an opportunity, decided over the weekend to accept the invitation and push for a visit this week, according to the people familiar with the discussions.

The people informed of Trump’s plans spoke on the condition of anonymity because of the sensitivity surrounding the matter. They said late Tuesday that talks between the Trump campaign and Mexican officials were ongoing, with Trump interested in going but logistics and security concerns still being sorted out.

UPDATE 2

It's done, Trump confirms.

I have accepted the invitation of President Enrique Pena Nieto, of Mexico, and look very much forward to meeting him tomorrow.

It is expected that Trump advisor and former New York City Mayor Rudy Giuliani, RNC Chairman Reince Priebus and Alabama Sen. Jeff Sessions, along with high-ranking Mexican officials, will attend the meeting.

Apple Inc., the US corporate parent of dozens of foreign legal entities, has been hit with a $14.6 billion tax bill by a commission of the European Union. At the heart of the commission’s complaint is an alleged antitrust violation rather than a tax dispute per se: Apple is accused of negotiating a sweetheart arrangement with Ireland, in exchange for creating thousands of new jobs there. Under the arrangement, Apple reportedly funneled millions in European profits to its Irish headquarters—where those profits were taxed at a very low rate. Therefore other EU nations where Apple has operations and/or sales suffered tax losses, due to Ireland’s unfair “competitive advantage” (i.e., lower tax rates). Or, as a bureaucrat might say, Apple receives illegal tax benefits from Ireland.

Politicians and elites viscerally hate any form of tax competition—at least for the plebes. See, for example the Organisation for Economic Cooperation and Development’s ongoing quest for “tax harmonization” among its member nations. See also the seething hatred for “offshore” tax havens, which generally are small, relatively poor island countries trying to attract banking clientele or corporate registrations. Journalist David Cay Johnston, for example—who never saw a tax he didn’t like—has wasted gallons of ink in the New York Timesdecrying wealthy Americans who dare to have a Cayman bank account without duly notifying Uncle Sam.

But in the end, tax competition tends to reward sensible countries and punish rapacious one. Hence the need for supranational quasi-governance from bodies like the OECD and the European Parliament—to prevent the Irelands of the world from treating their taxpayers a bit better.

Aside from the bizarre and unworkable transfer of national sovereignty to an EU body with fuzzy tax and regulatory powers, Apple’s predicament raises questions about its hypocrisy and corporate political power generally. It's a bit rich to hear Apple CEO Tim Cook suddenly become concerned over the “sovereignty of EU member states.” Cook, after all, is an outspoken progressive who presumably favors the kind of activist international tax and regulatory bodies exemplified by EU bureaucrats. He believes in putting people—and the environment—before profits, telling climate-change deniers to “get out” of Apple stock. And he clearlysubscribes to the “stakeholder” theory of corporate responsibility.

He also presumably favors distribution of income from the rich to the poor, and Apple certainly qualifies as the former: its mysterious hedge fund is awash with billions in cash. Yet Apple’s express use of offshore havens to shield income from the IRS hardly comports with the company’s image as a hip tech innovator concerned with social issues (e.g., note his criticisms of his home state of Alabama). And now the company, through a spokesman, is reduced to repeating that it “pays what it owes.” Not what it ought to owe, or an amount needed to sustain a robust safety net, or its “fair share”—just what it owes. Not very progressive sounding to me. After all, Mr. Cook, aren’t all Europeans stakeholders in Apple?

Hypocrisy aside, Apple’s dilemma raises some basic but important points about taxes—points Congress and progressives never seem to understand:

Our "worldwide" income tax system is particularly bad.

The US is one of only a handful of countries with a “worldwide” tax system. This means that US citizens, US residents, and corporations organized in the US owe taxes to the IRS based on their worldwide income, rather than only their income from US sources. The only way out of this warm embrace, at least for citizens, is outright expatriation.

Consider a Canadian born to US citizen parents, who is thus an American citizen at birth. This hypothetical Canadian—who has never set foot in the US, has no property or investments in the US, and has business dealings with anyone in the US—must file a US income tax return and pay US income taxes for life! (of course there is a credit available for foreign taxes paid, but the principle remains). This shocking reality has played a major role in transforming a US passport from one of the world’s most sought-after possessions into a tax albatross.

By contrast, most of the world (including most OECD nations) has “territorial” tax systems. In a territorial system, the UK taxes Britons only on their income from UK sources. If a Briton leaves the country, he or she is free to live and work abroad without worrying about remitting taxes home. Imagine that—the concept that a political jurisdiction should only tax activity that occurs within its borders.

US taxes create an incentive not to repatriate foreign earnings.

US companies with multinational sales and operations don’t want to hoard cash in overseas subsidiaries. On the contrary, management generally wants to repatriate foreign earnings for capex, innovation, R&D, or even (gasp) to pay dividends to shareholders.

Yet the overwhelming incentive is to leave foreign earnings in the foreign country. Despite our worldwide system, the US parent does not pay taxes on those earning until actually realized, i.e., when an actual dividend is actually paid by the subsidiary to the parent. Unlike dividends paid by domestic subsidiaries to US parents, foreign dividends generally do not qualify for a deduction.

Corporate managers are judged by the overall financial performance of the worldwide entity, and they don’t want earnings taxed three times—first in the foreign jurisdiction, then in the corporation’s US tax return, and finally in the personal income tax returns of shareholders. So usually they wait until an advantageous time—let’s say in a year when the US parent has tax losses—to repatriate foreign earnings. It’s a simple case of tax consequences driving business decisions. Deferral of taxes is the next best thing to not paying them at all.

Congress has not been entirely blind to this, but predictably chose the stick over the carrot when enacting the now infamous “Subpart F” rules (so named for their sub-position in one chapter of the Internal Revenue Code) in the early 1960s. Subpart F attempted to impose a hellishly complex anti-deferral regime on multinational corporations, but mostly managed to create huge opportunities for tax lawyers. Today, Congress is more willing to consider the carrot, in the form of a single-year tax holiday with reduced rates for repatriated dividends (as it did in 2004).

The only tax rate that matters is the effective tax rate.

The aforementioned complexity of the US tax system helps obscure a very important point: effective tax rates are the only rates that matter. Confusion over brackets and graduated marginal rates acts as a smokescreen.

The effective tax rate for a corporation is most easily defined as pre-tax earnings (very roughly, gross revenue less allowable deductions and credits) divided by its taxes actually paid. Effective tax rates—not statutory rates—are what company managers really focus on. So while the US corporate tax rate is among the highest in the world at 35%, that percentage is due only on income above a certain amount. And if a particular company or industry has effective lobbyists, favored tax deductions can drive effective tax rates well below 15%.

Arguing over rates and deductions only distracts us from focusing on the real picture: the overall cost of compliance, including the taxes paid, the opportunity costs, and the business decisions altered. Taxes are the price we pay for a very uncivilized, grasping, and war-prone federal leviathan.

Jeff Deist is president of the Mises Institute. He previously worked as a longtime advisor and chief of staff to Congressman Ron Paul. @jeffdeist

A general economic principle is that any law or regulation that restricts market entry tends to impose the greatest burden on those who can be described as poor, latecomers, discriminated-against and politically weak.

The president of the NAACP’s St. Louis chapter, Adolphus Pruitt, has petitioned a circuit court judge to reject the St. Louis Metropolitan Taxicab Commission’s conspiratorial call to issue a temporary restraining order that would force Uber to shut down. He says the order would negatively impact nearly 2,000 African-Americans who work as Uber partners in black neighborhoods that have long been ignored by taxis and other transportation providers. In a statement, Pruitt said, “The immediate harm of a (temporary restraining order) would strand thousands of African American riders who depend on Uber to travel around a city that has measurable gaps in its transportation system and has failed to serve our neighborhoods for decades.”

St. Louis taxicab restrictions are not nearly so onerous as those in some other cities. In New York, the license, called a medallion, to own one taxi costs $704,000. In Chicago, the medallion price in 2015 was $270,000, down from $357,000 in 2013. Boston medallions currently sell for about $200,000, and that’s down from $700,000 several years ago. The effect of these licensing restrictions is to close the market to those who do not have hundreds of thousands of dollars or are unable to acquire a loan to purchase a medallion. I’d ask my liberal friends: Who are the people least likely to have those resources?

Entry restrictions are not necessarily a racial issue. Those who are in a monopoly arrangement find it in their interest to keep outsiders out. If they can do so, it means they can charge higher prices and earn higher income. That means blacks who are part of a taxicab monopoly share the same interests as whites in that industry.

There are hundreds of conspiratorial entry restrictions that work against blacks. George Leef has a story in Forbes about a case before the courts, Pritchard v. Board of Cosmetology. The plaintiff is Tammy Pritchard, a policewoman who would like to supplement her income by working in a hair salon owned by a friend. The salon specializes in African hair braiding, and Pritchard wants to shampoo customers’ hair. After she had been working a few months, Tennessee Board of Cosmetology officials barred her from washing hair because she lacks a governmental license to do so. Under the board’s regulations, an individual must complete “not less than 300 hours” of instruction “in the practice and theory of shampooing” at an approved school. Pritchard cannot afford the time and money costs, so she has lost a source of income.

Members of what was surely the Venezuelan regime’s secret police yesterday kidnapped opposition leader and 2008 Milton Friedman Prize winner Yon Goicoechea from his car after he left his home. Diosdado Cabello, the second most powerful person in the regime, publicly announced that the government had arrested Yon on the bogus claim that he was carrying explosives. In the video broadcast on national television, Cabello referred to the $500,000 Friedman Prize award that Yon received as evidence that Yon was some sort of foreign-employed agent bent on terrorism. “That man was trained by the U.S. empire for years,” he said, “It looks like his money ran out and he wants to come here to seek blood. They gave him the order there in the United States.”

Barack Obama will likely have a face-to-face conversation with Russian President Vladimir Putin on the sidelines of next week’s G20 summit,U.S. Deputy National Security Advisor Ben Rhodes told Radio Free Europe.

Rhodes, however, said no formal meeting between the two leaders had been agreed on.

The Kremlin has confirmed that “one way or another” the two will meet in China, though presidential spokesman Dmitry Peskov said there was no preliminary agreement about a meeting, state news agency RIA Novosti reports.

Wow, this is a big punch to the gut of the grand authoritarian, crony establishment, politically correct-promoting, multi-national union.

German Foreign Minister Frank-Walter Steinmeier said European Union countries shouldn’t always have to move in lockstep on major projects as the EU seeks to hold together after Britain voted to leave, reports Bloomberg.

“We want a ‘flexible union’ that takes on the big questions effectively, but doesn’t oblige each member state to take each new step jointly,” Steinmeier said in remarks prepared for a conference in Berlin on Monday. At the same time, EU countries that want to take joint initiatives shouldn’t be held back by those that don’t want to join in, he said.

Steinmeier’s sketch of the EU’s future aligns with the view of German Finance Minister Wolfgang Schaeuble, who said in June that EU members will probably “advance pragmatically” and sometimes “move ahead in groups of states, at different speeds, via coalitions of the willing.” Schaeuble is a member of Merkel’s Christian Democratic Union, while Steinmeier’s Social Democrats are her junior coalition partner.

This smacks of desperation as the sounds of hammers knocking at the one world wall are being heard in Berlin, where they are familiar with hammers knocking on walls.

Tyler Cowen is out with a profile at Bloomberg on Heather Boushey, the chief economist of Hillary Clinton's transition team.

As alway,s you have to read between the lines of Cowen's pieces but it is very much worth the effort in this case. Cowen, correctly, thinks Boushey is off the wall bonkers.

From the Cowen essay:

This is a thoughtful and intelligent book, but for my taste Boushey holds too much faith in mandated and centralized solutions.
---
Boushey doesn’t estimate or indicate the expense of her proposed mandatory benefits, although she does suggest on page 1 that the cost would be “very small.” She is developing a new kind of supply-side economics, this time on the left, but like her right-wing counterparts she is running the risk of excess optimism about how much her suggested improvements will boost productivity in the system.
---
The most plausible response to these criticisms is that individual Americans cannot be trusted to make good decisions for themselves, and I am afraid that is the view being swept under the carpet here.

At a blog post, though, Cowen does seem to note an important positive:

She is also the chief economist for Hillary Clinton’s transition team, and I would trust her with nuclear weapons.

Monday, August 29, 2016

Larry Summers has a piece out at the Finacial Times where he says the Federal Reserve is moving too quickly on raising interest rates:

[T]o say that the case for a rate increase has strengthened is not to say that it has reached the point of being persuasive.

Even if the September employment report is strong, I do not see a case for a rate increase in that month.

I think he is off and this but what I really want to note for future reference is when he writes this:

There is no imminent danger of repeating the 1970s experience where inflation expectations ratcheted up leading to stagflation.

The man clearly has no clue as to how fast inflation expectations can ratchet up. In recent issues of the EPJ Daily Alert, I have been pointing out various data points that suggest price inflation is brewing just beneath the surface.

Let's pull this post up one year from today on August 29, 2017 and see how it looks.

I am re-posting and scheduling it to appear at EPJ again on that date.

Apple will on Tuesday be hit with Europe’s largest tax penalty after Brussels ruled that the company received illegal state aid from Ireland, reports the Financial Times.

FT continues:

The company will have to pay billions of euro in back taxes to Dublin as the European Commission moves to redraw the boundaries on aggressive tax avoidance by the world’s biggest corporations.

A 130-page judgment by the commission follows a three-year investigation into claims that two advance tax opinions issued by Dublin violated EU law by granting Apple an advantage not available to other companies.

Competition commissioner Margrethe Vestager circulated the final ruling to her counterparts in the EU’s executive branch only on Monday morning, deploying a fast-track procedure in a bid to minimise leaks. The usual notice period is two weeks.

The decision is set to be the subject of appeals in the European courts by Apple and Ireland, both of which have denied any wrongdoing.

Sometimes when I criticize something maintained by a great intellectual such as Ludwig von Mises, people respond by writing shorthand comments such as "Mises > Higgs." This is silly. Am I the intellectual equal of Mises? Of course not. I would be an idiot to suppose I am. However, my overall intellectual inferiority does not imply that when I disagree with him on a specific point, I am always the one who is wrong.

Am I the intellectual equal of Einstein? The question is ludicrous. Yet on certain matters where Einstein and I differ, he was clearly the one who was wrong. I can explain -- I believe, quite convincingly -- why socialism is an arrangement wholly unsuited for the attainment of the objectives that well-intentioned socialists such as Einstein believed it would attain. Einstein simply did not know much about economics, however great a physicist he surely was.

This same sort of difference may arise with anyone. There must be millions of people -- maybe hundreds of millions -- who are in some overall sense my intellectual superiors. Yet it does not follow that when I differ with one of these persons, I am the one in error.

Donald Trump's campaign is making its biggest general election ad buy to date, with plans to spend upward of $10 million on commercials airing over the next week or so, reports AP.

The campaign is expecting to air a new ad, which paints rival Hillary Clinton as a job-killer, as soon as Monday in nine states: Ohio, Pennsylvania, North Carolina and Florida, where the campaign has already been on the air, along with New Hampshire, Virginia, Iowa, Colorado and Nevada - all battleground states.

Trump senior communications adviser Jason Miller said in a statement that Trump's "positive message of economic opportunity is working and we see the national and battleground state polls all moving in the right direction."

"With Hillary Clinton off the campaign trail yet again this week and continuing to take many communities' votes for granted, we see this as the right time to show voters the benefits of an American economy under the leadership of Mr. Trump," he added.

Billionaire vulture investor and Donald Trump supporter Wilbur Ross, who is on a short list as a potential Treasury Secretary in a Trump administration, thinks that Keynesian stimulus policy works to cure the business cycle.

Both US and European policymakers have misdiagnosed what ails the global economy. It is not a short-run, cyclical problem curable with textbook Keynesian stimuli (and exotics like quantitative easing).

He is also a trade Neandrethal. In the Finacial Times piece, he goes on to explain what "really" is ailing the U.S. and European economies from his perspective:

The broader lesson here is that while exports do indeed create jobs, it is net exports that ultimately matter. When countries like the US and continents like Europe run massive and chronic trade deficits and countries like China do not allow freely floating currency movements to balance trade, bad things will eventually happen in the forms of accelerated offshoring, slower growth, falling productivity and stagnant wages... Europe has lagged behind the US in imposing countervailing tariffs against dumping, and is now paying a very heavy price.

This past weekend global central bankers met for their annual gathering in Jackson Hole Wyoming hosted by the Kansas City Federal Reserve Bank.

Among those in attendance were the Federal Reserve key monetary policy troika of New York Federal Reserve Bank president William Dudley (left in the photo), Fed chair Janet Yellen and Federal Reserve vice-chairman Stanley Fischer.

Forget the other members of the Federal Reserve and what they say. It is these three that set policy,

Dudley, a former employee of Goldman Sachs, delivers the Goldman position to the troika. He dines weekly with Jan Hatzius. the chief economist at Goldman.

Yellen regularly promotes various models and theories as to how monetary policy should be handled. They are often contradictory but she ignores them all anyway when it comes to actual policy decisions.

Fischer is the adult in the room, or at least the designated driver. He would be chairman of the Fed, instead of Yellen if it wasn't for the fact that he has dual US and Israeli citizenship and was head of the Israeli central bank, which would make it problematic for him to gain the votes in the Senate necessary to get approved for the chairmanship.

Of the three, he is the most likely to be aware that price inflation could heat up at any time.

Imagine if the president of the United States forced America’s biggest banks to funnel hundreds of millions—and potentially billions—of dollars to the corporations and lobbyists who supported his agenda, all while calling it “Main Street Relief.” The public outcry would rightly be deafening. Yet the Obama administration has used a similar strategy to enrich its political allies, advance leftist pet projects, and protect its legacy—and hardly anyone has noticed.

The administration’s multiyear campaign against the banking industry has quietly steered money to organizations and politicians who are working to ensure liberal policy and political victories at every level of government. The conduit for this funding is the Residential Mortgage-Backed Securities Working Group, a coalition of federal and state regulators and prosecutors created in 2012 to “identify, investigate, and prosecute instances of wrongdoing” in the residential mortgage-backed securities market. In conjunction with the Justice Department, the RMBS Working Group has reached multibillion-dollar settlements with essentially every major bank in America.

The most recent came in April when the Justice Department announced a $5.1 billion settlement with Goldman Sachs. In February Morgan Stanley agreed to a $3.2 billion settlement. Previous targets were Citigroup ($7 billion), J.P. Morgan Chase ($13 billion), and Bank of America, which in 2014 reached the largest civil settlement in American history at $16.65 billion. Smaller deals with other banks have also been announced.

Combined, the banks must divert well over $11 billion into “consumer relief,” which is supposed to benefit homeowners harmed during the Great Recession. Yet it is unknown how much, if any, of the banks’ settlement money will find its way to individual homeowners. Instead, a substantial portion is allocated to private, nonprofit organizations drawn from a federally approved list. Some groups on the list—Catholic Charities, for instance—are relatively nonpolitical. Others—La Raza, the National Urban League, the National Community Reinvestment Coalition and more—are anything but.

This is a handout to the administration’s allies. Many of these groups engage in voter registration, community organizing and lobbying on liberal policy priorities at every level of government. They also provide grants to other liberal groups not eligible for payouts under the settlements. Thanks to the Obama administration, and the fungibility of money, the settlements’ beneficiaries can now devote hundreds of thousands or even millions of dollars to these activities.

The settlements also give banks a financial incentive to fund these groups. Most of the deals give double credit or more against the settlement amount for every dollar in “donations.” Bank of America’s donation list—the only bank to disclose exactly where it sends its money—shows how this benefits liberal groups. The bank has so far given at least $1.15 million to the National Urban League, which counts as if it were $2.6 million against the bank’s settlement. Similarly, $1.5 million to La Raza takes $3.5 million off the total amount of “consumer relief” owed by the bank. There are scores of other examples.

Sunday, August 28, 2016

The decision of several major insurance companies to cut their losses and withdraw from the Obamacare exchanges, combined with the failure of 70 percent of Obamacare's health insurance “co-ops, ” will leave one in six Obamacare enrollees with only one health insurance option. If Obamacare continues on its current track, most of America may resemble Pinal County, Arizona, where no one can obtain private health insurance. Those lucky enough to obtain insurance will face ever-increasing premiums and a declining choice of providers.

Many Obamacare supporters claimed that the exchanges created a market for health insurance that would allow consumers to benefit from competition. But allowing consumers to pick from a variety of government-controlled health insurance plans is not a true market; instead it is what the great economist Ludwig von Mises called “playing market.”

Unfortunately, if not surprisingly, too many are drawing the wrong lessons from Obamacare’s difficulties. Instead of calling for a repeal of Obamacare and all other government interference in the health care market, many are calling for increased penalties on those who defy Obamacare’s individual mandate in order to force them onto the exchanges. Others are renewing the push for a “public option,” forcing private companies to compete with taxpayer-funded entities and easing the way for the adoption of a Canadian-style single payer system.

Even those working to restore individual control over health care via tax deductions, credits, and expanded health savings accounts still support government intervention in order to provide a “safety net” for the poor. Of course, everyone — including libertarians — shares the goal of creating a safety net. Libertarians just understand that a moral and effective safety net is one voluntarily provided by individuals, religious organizations, and private charities.

Government has no legitimate authority to take money from taxpayers to fund health care or any other type of welfare program. Government-run health care also does not truly serve the interest of those supposedly “benefiting” from the program. Anyone who doubts this should consider how declining reimbursements and increasing bureaucracy is causing more doctors to refuse to treat Medicaid and Medicare patients.

Medicaid patients will face increasing hardships when, not if, the US government's fiscal crisis forces Congress to make spending cuts. When the crisis comes, what is more likely to be cut first: spending benefiting large corporations and big banks that can deploy armies of high-powered lobbyists, or spending benefiting low-income Americans who cannot afford K Street representation?

Contrary to myth, low-income individuals did not go without care in the days before the welfare state. Private, charity-run hospitals staffed by volunteers provided a safety net for those who could not afford health care. Most doctors also willingly provided free or reduced-price care for those who needed it. The large amount of charitable giving and volunteer activity in the United States shows that the American people do not need government's help in providing an effective safety net.

The problems plaguing the health care system are rooted in the treatment of health care as a "right." This justifies government intervention in the health care marketplace. This intervention causes increasing prices and declining quality and supply. Ironically, those who suffer most from government intervention are the very people proponents of these programs claim to want to help. The first step in restoring a health care system that meets the needs of all people is to start treating health care as a good that can and should only be provided via voluntary actions of free people.

The Telegraphsays the book has a "hastily written 'Afterword on Brexit'”:

Stiglitz acknowledges that “free migration across the European Union” has “been an economic and political disaster”. He also says, significantly, that “Britain isn’t likely to be much worse off and potentially could even be better off” after leaving the European Union.

As the title of the book indicates, he also goes off on the euro:

"Europe, the source of the Enlightenment, the birthplace of modern science, is in crisis.” So says Joseph Stiglitz, Nobel Prize-winning economist and sometime chairman of President Bill Clinton’s Council of Economic Advisors.

“Large parts of Europe” have endured “a lost decade”; incomes per head are “lower than before the [2008] global financial crisis”. While Germany is doing “relatively well”, there’s “soaring youth unemployment” in France, Italy and Spain. “In a well-functioning economy, there’s rapid growth, the benefits of which are shared widely,” Stiglitz writes, but “in Europe we see the opposite”.

So what, he asks, is the “big policy problem”, Europe’s “one underlying mistake”? To some, his conclusion may be surprising. For Stiglitz points his finger squarely at “the fatal decision to adopt a single currency, without first providing the institutions to make it work”.

Yes, the rub is that Stiglitz's explanation for the failure of the euro and EU migration policies is that state institutions were not put in place to properly regulate migration and the euro. Stiglitz must, after all, answer to his crony one world patrons, so it is always about not enough one world crony institutions. But the fact that he has to admit failure, at all, is remarkable. It tells you just how rotted and spectacular a failure the epicenter of the EU plan has been.

The Telegraph gets it:

Passionately written, this important book will rock the smug, often detached eurozone policymaking elite. As a Left-wing firebrand, though, Stiglitz is too quick to blame “market fundamentalism” for the eurozone’s woes, especially when one remembers that a single, rigidly fixed, Europe-wide exchange rate was originally the vision of French socialist Jacques Delors. Stiglitz deserves credit for breaking a taboo among respectable mainstream economists and finally admitting that the single currency is doomed. But if the euro’s structural failings are so “obvious”, why didn’t he point them out 20 years ago, before it was launched?...

This is a book, then, that will unnerve millions of British centre-Left progressives – those who backed British EU membership unquestioningly and now complain bitterly about Brexit. Many such voters, after all, view Stiglitz as their favourite economist.

Enrollment in the insurance exchanges for President Obama’s signature health-care law is at less than half the initial forecast, pushing several major insurance companies to stop offering health plans in certain markets because of significant financial losses.

As a result, the administration’s promise of a menu of health-plan choices has been replaced by a grim, though preliminary, forecast: Next year, more than 1 in 4 counties are at risk of having a single insurer on its exchange, said Cynthia Cox, who studies health reform for the Kaiser Family Foundation.

Naturally, Obama wants to go even more socialist:

Obama has used the health-care law’s challenges to issue a new call for a public insurance option.

“Congress should revisit a public plan to compete alongside private insurers in areas of the country where competition is limited,” he wrote in an essay published in the Journal of the American Medical Association. “Adding a public plan in such areas would strengthen the Marketplace approach, giving consumers more affordable options while also creating savings for the federal government.”

Yeah right, coercing taxpayers to pay for a crony public plan is the answer,